Discussion paper

DP13074 Costly Pretrial Agreements

Settling a legal dispute involves some costs that the parties have to incur ex-ante, for the pretrial negotiation and possible agreement to become feasible. Even in a full information world, if the distribution of these costs is sufficiently mismatched with the distribution of the parties’ bargaining powers, a pretrial agreement may never be reached even though actual Court litigation is overall wasteful.

Our results shed light on two key issues. First, a Plaintiff may initiate a law suit even though the parties fully anticipate that it will be settled out of Court. Second, the “likelihood” that a given law suit goes to trial is unaffected by how trial costs are distributed among the litigants. The choice of fee-shifting rule can only affect whether the Plaintiff files a law suit in the first place. It does not affect whether it is settled before trial or litigated in Court.


Felli, L, L Anderlini and G Immordino (2018), ‘DP13074 Costly Pretrial Agreements‘, CEPR Discussion Paper No. 13074. CEPR Press, Paris & London. https://cepr.org/publications/dp13074